Ixigo Rides Along, As India Travels More. But, Can It Keep Up The Pace?
The advice to “stay invested” is easy to give. It’s also suspiciously convenient when it comes from a fund manager who benefits when you don’t leave.
So, we tested it. Eighteen flexi cap funds. Over a decade of data. A simulated investor who exits when their fund underperforms.
The answer is uncomfortable for different reasons than we anticipated.
Investor returns depend on two decisions: which fund you pick, and what you do after you pick. Research suggests most investors get at least one wrong. The DALBAR Quantitative Analysis of Investor Behavior[i] estimates investors trail the very funds they invest in by nearly 2% annually. Morningstar’s Mind the Gap 2025 report[ii] found a 1% gap over a decade.
We wanted to see how this holds for Indian equity funds. So we analyzed 18 flexi cap funds with at least a decade of history, examining both the range of outcomes across funds and what happens when investors react to underperformance by switching.
The findings: fund choice creates enormous variance in outcomes, but after accounting for taxes, reacting to that variance almost never helps.
What Fund Choice Costs
First, one obvious and one not-so-obvious insight from the data.
The best performer in our data set delivered nearly 5% alpha, i.e., excess return over the benchmark. The worst performer trailed by 4%.
A 9% difference in annual return compounded over more than a decade. That translates to a 3x difference in terminal wealth on the same starting investment.
The obvious truth: picking the right fund clearly matters.
Chart shows the 18 funds’ annualized excess returns over the Nifty 500.
Of the 18 flexi cap funds with 10+ year track records, 14 beat the benchmark over the full period. Only four did not.
Picking the right fund has been more about avoiding the consistent laggards and not about finding that one superstar.
Unless the task you set yourself is to identify the absolute top-performer, which is harder than it looks without the benefit of hindsight.
The Price Of Admission
Switching funds is never free. There’s the exit load if you sell within the specified holding period, then the capital gains tax on whatever you’ve earned. On top of that, the new fund typically takes a few weeks to fully deploy fresh capital, so the money sits partly in cash right when you least want it to.
In our simulation, an investor who switched out of an underperforming fund and into the prior year’s best performer paid, on average, close to 2% of the moved capital in taxes and transaction costs before a single rupee of the new fund’s return had a chance to compound.
That 2% doesn’t sound large in isolation. Compounded away silently every time an investor switches, it is the single biggest reason the money-weighted return trails the time-weighted one.
What Switching Actually Costs
We modelled a simple rule: sell any fund that trails the category average over a rolling three-year window, and move the proceeds into the current top performer. It is a rule most investors would consider reasonable — and it is the one many actually follow, if not always this explicitly.
Over the full decade, the switching strategy delivered a terminal value roughly 18% lower than simply holding the original fund throughout, laggard years included.
The reason isn’t that the new funds picked were bad — most of them were the following year’s above-average performers. The reason is the tax drag on exit, the days spent out of the market during the transition, and the fact that today’s laggard and tomorrow’s leader change places more often than investors expect.
Picking Well
None of this argues against picking carefully. It argues against picking, then re-picking, then re-picking again.
The funds that beat the benchmark over our full decade shared a few traits:
- A consistent, articulated process for position sizing.
- A mandate the fund manager stuck to even when it underperformed peers for a year or two.
- Expense ratios in the lower half of the category.
None of the 14 outperformers won every single year. Several spent two or even three consecutive years behind the benchmark before pulling ahead. An investor who switched out during that stretch, on the reasonable belief that the fund had lost its edge, would have missed the recovery entirely.
What Returns Don’t Tell You
A fund’s headline CAGR describes the destination, not the road. Two funds can post the identical 10-year annualised return and deliver completely different experiences along the way — one with a smooth, low-volatility climb, the other with two separate 30%+ drawdowns an investor had to sit through.
It’s the second kind of fund that gets sold at exactly the wrong moment, not because its long-run return is worse, but because the drawdown, when it arrives, feels like proof the fund has stopped working.
This is why we look at drawdown depth and recovery time alongside CAGR before recommending a fund — a return figure without its accompanying volatility profile tells half the story.
Buy The Fund You Can Hold
The best fund on a spreadsheet is not the best fund for a given investor if that investor can’t stay invested in it through a rough patch. A fund with a slightly lower expected return but a gentler drawdown profile will often out-earn, in practice, a higher-return fund the investor abandons at the bottom.
This is a portfolio construction decision as much as a fund-selection one: sizing a volatile, high-conviction fund as a smaller part of a portfolio, rather than avoiding it altogether, lets an investor participate in its upside without being forced into a panic exit when it has its inevitable weak stretch.
Be OK To Sin A Little
No fund, however well-run, will lead its category every single year. Expecting one to is what turns a good long-term holding into a source of yearly anxiety and a candidate for premature replacement.
We ask clients to set, in advance, how much underperformance — and for how long — is tolerable before it’s even a conversation worth having. Three years behind the category average, for a fund that’s beaten it over the full cycle, is not evidence of failure. It’s the cost of admission for equity returns that beat the benchmark over the long run.
Holding Well
Holding well is a process, not a personality trait. It looks like:
- Position sizes decided before the market moves, not after.
- A rebalancing schedule fixed to a calendar date rather than a headline.
- A written record of why each fund was chosen, to be checked against before any decision to sell.
Investors who followed a version of this process, in our data, captured close to the full return of the funds they held. Investors who made ad hoc decisions captured, on average, meaningfully less — not because they picked worse funds, but because they exited and re-entered at the wrong points within the same funds.
Style Drought Or Process Failure?
The hardest judgment call for any investor — or advisor — is telling apart a fund that’s temporarily out of favour with the market from one whose process has genuinely broken down.
A style drought looks like underperformance concentrated in periods when the fund’s preferred style (value, quality, small-cap, whatever it may be) is broadly out of favour across the market, and the fund’s positioning relative to its own mandate hasn’t changed. A process failure looks like style drift, a change in the team, or underperformance that persists even once the fund’s preferred style comes back into favour.
The first is a reason to hold. The second is a reason to sell. Confusing the two in either direction is where most switching decisions go wrong.
The Cost Is Certain, The Benefit Isn’t
Here is the asymmetry at the heart of this entire analysis: the cost of switching — taxes, exit loads, time out of the market — is certain and immediate. The benefit — that the new fund will genuinely outperform the old one, net of those costs, over the period that matters — is not.
Across our simulation, this asymmetry alone explains most of the gap between what the funds returned and what switching investors actually kept. Reacting to underperformance feels like taking action. Often, it’s paying a certain cost in pursuit of an uncertain benefit.
Our Side, Your Side
This is why fund choice and behaviour get treated as two separate problems in our process, not one. We spend real effort selecting funds with a demonstrable, repeatable edge. Once a fund is chosen, our job shifts to making sure a client’s own reactions to short-term news don’t undo that selection — through position sizing decided upfront, rebalancing on a schedule, and a framework that survives a bad quarter without a phone call.
The return you see on a factsheet and the return you keep in your account are only ever the same number for the investor who does nothing differently in a bad year than in a good one. That’s a harder discipline than picking the right fund. It’s also the one that actually compounds. testtest
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